Foreign Affairs; Hype and Anti-Hype

By THOMAS L. FRIEDMAN

Published: February 23, 2001

The Gartner Group consultants have developed a useful concept to describe the hype around new technologies, which they call the ''hype cycle.'' As a new technology -- like the Internet -- is triggered, the hype curve soars upward until it reaches a peak of inflated expectations. Then it sinks almost straight down into a trough of disillusionment, as the less successful players drop out. And finally it climbs steadily upward again to a new stable plateau, as clear winners emerge and the new technology is absorbed, integrated and made profitable by people and industries that understand it.

According to the hype curve, where we are now with the Internet is in the trough -- when all those who didn't really understand it or who are disillusioned by their dot-com investments pronounce it all a bubble. This trough, though, can be as misleading as the hype cycle's peak. If you think that just because Pets.com didn't make it the Internet is over, then you're not paying attention.

The real Internet wars are just beginning, and they aren't going to be between Amazon.com and E-Toys. The real Internet wars happen when all the old-line companies, with real assets, real size and real business models, fully absorb the Internet -- including e-commerce, e-inventory, e-bookkeeping, e-training, e-customer management -- into their traditional businesses and start to take each other on with meaner, leaner companies.

The real Internet wars happen when Goliaths like Target, Kmart and Wal-Mart, or G.M., Toyota and Ford, or Dell and Compaq fully absorb the Internet to speed up, lighten up and globalize every aspect of their businesses. And the real Internet wars also happen when the NGO's, human rights groups, conservationists and other activists become fully Internet-enabled and use its power to challenge big companies and to force transparency on big governments.

As Jeffrey Garten writes in his new book, ''The Mind of the C.E.O.,'' ''The big question is whether today's C.E.O.'s have the savvy and the stamina to defeat the dot-coms, which is the first leg of the race, and then run this second, more difficult and much longer race against their peers -- or whether it will take their successors to do it.''

The measure of what's happening with the Internet today is not Buy.com or the Nasdaq. It's what is happening in China, where Internet deployment is moving so fast that Chinese will be the most popular language on the Web by 2007; in India, where AOL just announced a $100 million investment; and in Europe, where the net economy is expected to grow twentyfold by 2004.

''People talked about the Internet as a business revolution; it actually constitutes more of a business evolution,'' argues Orit Gadiesh, the chairman of Bain & Co., consultants. ''Revolution is when the nature or distribution of power shifts. But what is happening now is that the traditional holders of assets are absorbing the Internet and leveraging it as a tool. The Internet is, though, an instrument of social revolution. It has put power in different people's hands and connected people who have never been connected before.''

Because the Internet build-out is proceeding apace, the next generation could trigger a business revolution as well. ''Internet Two,'' about four years away, will combine broadband, wireless and IP V.6 Internet switches, which will enable everything with electricity to have its own Web address that will make it intelligent. So your refrigerator will be able to talk to your grocery store over the Web or your company's cash registers directly to your manufacturer's assembly line. ''Internet Two is a smarter Internet that will allow us to have many more devices connected, controlled and be informed about those devices,'' says Bill Nuti, the president of Cisco Europe.

As this Internet build-out continues, says Joel Cawley, the director of business strategy for I.B.M., it will enable businesses, individuals and activists to tap into a much broader and powerful base of creativity and innovation, with a much lighter touch. ''So,'' he adds, ''smaller and smaller units will become more and more empowered and bigger and bigger units will become more and more decentralized. None of us knows how this will play out, but we do know it will impact the hierarchy of power in, and between, institutions, governments and activists. And the new rules for these interactions are just beginning to be evolved.''